Key partnerships and dependencies – how do you know if it is a trap or not?

We came across an interesting subject the other day in class; the importance of partnerships when forming a business model vs. not being dependent on one single actor.

The issue presented and that has been vividly studied in media is the massive enterprise Amazon that has disrupted the sales of book sales for firms like Barnes & Noble. This has been an enormous opportunity for smaller writers to put their product in stock on the shelf of the e-commerce giant. What has happened now is that these writers are dependent on Amazon in order to sell their products; the huge retailer has a very strong bargaining power and can easily drop prices to directly compete with the smaller writers – loosing a couple of hundred thousand dollar won’t matter much if you are the biggest player.

This is a position that you do not want to find yourself and your business in. So in order to reduce the risk of dependency, is it enough to just increase the number of partnerships?

Another interesting, and very contemporary, subject is the music distribution industry. Spotify, one of the largest actors in the industry has somewhat reincarnated the idea of music distribution – but it has been around for several decades. Despite the, excuse my objectivity, louse pay-checks that has been paid out to record labels and musicians, somehow Spotify has lured big players in the music industry and millions of active users have followed their value proposition.

Now, I have had a couple of friends that have worked for Spotify here in Sweden. When asked about the future and their business model the response is this:

‘There will be a dominant player in the music distribution industry within the next 5 years. The focus of Spotify is not profitability, but “users, users, users”. Spotify must come out on top and then we can make money.’

It will be interesting to see how the dynamics between Spotify and the labels/musicians will develop, but it seems like they will be dependent on one large actor in the end and that their music won’t get a long reach without that actor. According to the history and how other markets have developed (read the book industry, mentioned above), then this is a bad sign for the musicians. Just as the consumers brought this down upon the book-wholesalers, so it will be brought down on the musicians.

I would like to discuss how musicians could work against the dominant player and, in the end, save their industry. Any thoughts anyone? 🙂

BR Ludwig Widén